UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


^ow  the  Law  of  Agency 
Affects  Business 


Modern  American  Law  Lecture 


Blackstone  Institute,  Chicago 


HOW   THE   LAW  OF  AGENCY 
AFFECTS  BUSINESS 


BY 

T.  J.  MOLL,  Ph.B.,  LL.M. 

Judge  Superior  Court,  Indiana. 


One  of  a  Series  of  Lectures  Especially  Prepared 
for  the  Blackstone  Institute 


BLACKSTONE    INSTITUTE 
CHICAGO 

Copyright,  1919,  By  Blackstone  Institutb 


T.  J.  MOLL 


THEOPHILUS  J.  MOLL 

Judge  Theophilus  J.  Moll,  the  author  of  this 
Lecture,  was  horn  at  Evansville,  Indiana,  in  1872. 
Having  completed  the  high  school  course  with  hon- 
ors, he  attended  DePauw  University,  from  which 
he  received  his  bachelor's  degrees  in  philosophy 
and  law.  He  was  appointed  clerk  of  the  Superior 
Court  at  Evansville,  and  after  serving  two  years 
was  awarded  a  scholarship  at  Cornell  University 
and  received  his  master's  degree  in  law.  He  was 
given  a  scholarship  at  Columbia  University,  which 
he  resigned  to  take  up  the  practice  of  law  in  In- 
diana, having  been  admitted  in  1894. 

In  1901  he  was  engaged  as  instructor  in  the  In- 
dianapolis College  of  Law,  became  its  dean  in 
1905,  and  resigned  in  1909  to  found  the  American 
Central  Law  School,  of  which  he  continued  as  dean 
until  its  merger  into  the  Benjamin  Harrison  Law 
School  at  Indianapolis,  of  which  he  was  dean  until 
1919.  He  was  elected  Judge  of  the  Superior  Court 
at  Indianapolis  in  1914. 

He  wrote  the  article  on  "Receivers"  in  Modern 
American  Law,  has  written  several  of  the  lectures 
in  this  series,  is  the  author  of  a  text  on  Independent 
Contractors,  has  contributed  to  the  Standard  Ency- 
clopedia of  Procedure,  American  Leading  Cases, 
Dunham's  Law  of  Insurance,  Elliott  on  Contracts 
and  the  fourth  edition  of  Elliott  on  Corporations. 
He  is  a  member  of  the  Indiana  State  and  Indian- 
apolis Bar  Associations. 


HOW  THE  LAW  OF  AGENCY 
AFFECTS  BUSINESS 

By 
T.  J.  Moll,  Ph.B.,  LL.M. 

I. 

INTRODUCTION. 

One  of  the  most  common  and  important  features 
of  everyday  life  and  activity  today  is  the  relation 
of  principal  and  agent.  Consciously  and  uncon- 
sciously, voluntarily  and  involuntarily,  business 
affairs  of  both  large  and  small  magnitude  are  being 
conducted  by  representatives  of  those  interested,  as 
often  as,  if  indeed  not  oftener  than,  by  the  parties 
themselves. 

In  this  Lecture,  a  number  of  cases  have  been  re- 
ferred to  which  illustrate  the  propositions  of  law  in- 
volved. Consideration  of  these  cases  will  show  how 
frequently  business  transactions  are  controlled  by 
the  rules  of  Agency.  Vitally  connected  with  prac- 
tically every  one  of  these  transactions,  are  questions 
regarding  the  mutual  relations  springing  up  and 
existing  between  the  parties.  These  situations  in- 
volve the  rights  the  principal  acquires  as  to  the  third 
persons  and  conversely  the  rights  of  the  third  persons 
against  the  principal.  Of  corresponding  interest,  are 
the  interrelations  between  the  agent  and  third 
persons,  and  the  principal  and  agent. 

Assuming  that  the  relation  of  agency  exists, 
whether  by  appointment,  ratification,  estoppel  or  by 

5 


6  MODERN  AMERICAN  LAW  LECTURE 

necessity,  let  us  see  what  results  follow  the  creation 
of  the  relation  or  of  any  transaction  connected  with 
the  relation.  We  then  need  to  consider  how  properly 
to  carry  out  the  purposes  of  the  relation,  what  the 
effects  of  a  valid  exercise  of  the  relation  are,  and 
what  may  result  from  a  nonfeasance,  misfeasance 
or  malfeasance  of  the  agency  status. 

II. 

RELATIONS  BETWEEN  THE  PRINCIPAL  AND 
THIRD  PERSONS 

As  the  primary  purpose  of  agency  is  to  bring  the 
principal  into  contractual  relations  with  the  third 
party  through  representation  by  the  agent,  it  follows 
that  the  most  important  division  of  our  topic  is  that 
referring  to  the  relations  between  the  principal  and 
third  persons.  We  soon  come  to  realize  that  sub- 
stantially every  transaction  carries  with  it  reciprocal 
rights  and  obligations.  This  is  true  particularly  if 
the  contract  is  wholly  executory,  for  there  both  par- 
ties have  mutually  made  promises  each  to  the  other 
to  be  carried  out  subsequent  to  their  making. 

Dealing  With  Agent  Perilous. 

A  third  person  is  commonly  said  to  deal  with  an 
agent  "at  his  peril".  By  this  is  meant  that  when  a 
third  person  contracts  with  another  through  the 
other's  agent,  he  takes  the  chances  of  making  a  bind- 
ing contract,  that  is,  one  which  will  be  enforced.  It 
is  up  to  the  third  person  to  see  that  his  own  interests 
are  safeguarded  by  first  establishing  that  the  agent 
is  acting  within  the  scope  of  the  authority  granted. 


LAW  OF  AGENCY  AFFECTS  BUSINESS  7 

Now  the  scope  of  authority  may  be  either  actual  or 
apparent.  The  third  person  has  a  right  to  contract 
within  the  apparent  scope  of  the  agent's  authority, 
provided  such  third  person  does  not  already  know 
the  actual  scope  of  authority. 

Constructive  Notice.  Generally  speaking,  every 
one  is  presumed  to  know  the  law.  Therefore  as  pub- 
lic officers  have  only  such  authority  as  is  given  them 
by  statute,  persons  dealing  with  them  as  public 
agents  are  bound  to  know  the  limitations  of  their 
authority.  As  said  by  the  United  States  Supreme 
Court,  "It  is  better  that  an  individual  should  occa- 
sionally surfer  from  the  mistakes  of  public  officers 
or  agents,  than  to  adopt  a  rule,  which,  through  im- 
proper combinations  or  collusion,  might  be  turned  to 
the  detriment  and  injury  of  the  public." 

So  also,  every  one  is  presumed  to  have  construc- 
tive notice  of  instruments  properly  recorded  in  pub- 
lic records.  Hence  if  one  is  acting  under  a  formal 
power  of  attorney,  duly  recorded,  the  third  person 
dealing  with  him  is  deemed  to  know  positively  the 
extent  of  the  power  of  such  attorney  in  fact.  It  ac- 
cordingly follows  that  third  persons  dealing  with 
these  two  classes  of  agents  are  protected  in  their 
transactions  only  so  far  as  such  agents  have  actual 
authority. 

Actual  Authority  as  by  Power  of  Attorney.  The 
following  is  a  common  form  of  a  Power  of  Attorney 
which  may  be  used  in  most  states,  but  of  course  should 
be  changed  to  suit  the  agency  in  each  case. 

"KNOW  ALL  MEN  BY  THESE  PRESENTS, 
That  I,  William  Merrill,  of  Indianapolis,  Marion 


8  MODERN  AMERICAN  LAW  LECTURE 

County,  Indiana,  do  hereby  appoint  Albert  Daniels, 
of  Chicago,  Cook  County,  Illinois,  my  attorney,  in 
said  city  of  Chicago,  for  me  and  in  my  name,  to 
demand,  sue  for  and  receive  all  debts  or  other  per- 
sonal property  to  which  I  am  now  or  may  hereafter 
become  entitled,  or  which  are  now  or  may  become 
due  and  payable  to  me,  and  in  my  name  and  as  my 
act  and  deed  to  sign,  seal,  acknowledge  and  deliver 
general  warranty  deeds  of  any  and  all  real  estate 
which  I  now  or  may  hereafter  own  in  said  city  of 
Chicago,  and  to  make,  draw,  sign,  accept  or  endorse 
in  my  name  any  negotiable  paper  in  which  I  may  be 
interested  or  which  may  be  necessary  in  the  transac- 
tion of  my  business  connected  with  said  real  estate ; 
to  manage  all  of  the  said  real  estate  in  said  city  of 
Chicago  and  to  make  a  delivery  of  such  leases  and 
agreements  as  shall  be  necessary,  and  receive  and  col- 
lect all  rents  which  may  be  due  and  payable  to  me 
from  said  real  estate,  and  generally  to  act  as  my 
attorney  and  agent  in  said  city  of  Chicago  aforesaid 
in  relation  to  the  premises ;  and  all  other  matters  in 
which  I  may  be  interested  or  concerned  and  on  my 
behalf  to  execute  all  such  instruments  and  to  do  all 
such  things  as  fully  in  all  respects  as  I  myself  could 
do  if  personally  present;  and  I  hereby  for  myself, 
my  heirs,  executors  and  administrators  ratify  and 
confirm  whatsoever  my  said  attorney  shall  do  by  virtue 
hereof,  hereby  giving  him  full  power  to  substitute 
and  appoint  from  time  to  time  another  person  in  his 
stead  with  the  same  powers  as  herein  granted  him, 
hereby  confirming  and  ratifying  all  such  appoint- 
ments. 


LAW  OF  AGENCY  AFFECTS  BUSINESS  9 

In  witness  whereof,  I  have  hereunto  set  my  hacd 
and  seal  at  Indianapolis,  Marion  County,  Indiana, 
this  1st  day  of  July,  A.  D.  1914. 

WILLIAM  MERRILL. 
State  of  Indiana.") 

r"SS 

County  of  Marion.  J 

Before  me  the  undersigned  a  Notary  Public  in  and 
for  said  County  and  State  this  1st  day  of  July,  A.  D. 
1914,  personally  appeared  the  above  named  William 
Merrill  and  acknowledged  the  execution  of  the  fore- 
going power  of  attorney  for  the  uses  and  purposes 
therein  set  forth. 

Witness  my  hand  and  Notarial  Seal  at  Indian- 
apolis, Indiana,  this  1st  day  of  July,  A.  D.  1914. 

My  Commission  Expires  July  6th,  1915. 

CHARLES  LOGAN,  Notary  Public." 

Whenever  any  agent  acts  within  the  scope  of  his 
actual  authority,  the  result  is  a  contract  binding  alike 
on  both  his  principal  and  the  third  person,  provided 
such  contract  (had  it  been  made  by  the  principal  act- 
ing in  person)  would  have  been  binding.  This  is  the 
very  essence  of  the  agency  relation. 

Scope  of  Apparent  Authority. 

While  it  is  true  that  a  third  person  deals  with  an 
agent  at  his  peril,  still  such  third  person  does  not 
take  all  the  risk.  If  the  agency  relation  exists  and 
the  third  person  is  not  apprised,  actually  or  con- 
structively, of  the  limits  of  the  agent's  actual  au- 
thority, such  third  person  is  protected,  provided  the 
agent  acted  within  the  apparent  scope  of  his  author- 


10  MODERN  AMERICAN  LAW  LECTURE 

ity.  When  agents  are  the  means  of  transacting  busi- 
ness, the  public  is  entitled  to  deal  with  them  in  a  rea- 
sonable and  prudent  manner,  without  being  obliged 
to  take  the  chance  in  the  end  that  the  agent  exceeded 
his  authority. 

This  is  true  even  where  the  agent,  acting  within  his 
apparent  authority,  violates  positive  rules  of  his 
principal  so  long  as  the  third  person  is  not  aware  of 
such  secret  limitations.  Under  such  circumstances 
the  usual  doctrine  applies  and  governs  that  where 
one  of  two  innocent  persons  must  suffer  he  must  bear 
the  loss  who  made  it  possible.  Clearly  it  is  the  prin- 
cipal who  has  made  the  loss  possible  by  having  a  per- 
verse, incompetent  or  faithless  agent. 

Poivers  Included.  Included  within  the  apparent 
scope  of  the  agent's  authority  in  addition  to  the  pow- 
ers actually  conferred,  are  certain  incidental  powers. 
A  sales-agent  ordinarily  may  warrant  his  principal's 
title.  By  commercial  custom,  a  bank  cashier  may  bor- 
row money  on  his  bank's  credit.  Other  powers  may 
properly  be  inferred  from  the  principal's  own  con- 
duct, although  in  reality  these  may  as  well  be  con- 
sidered as  powers  actually  conferred. 

A  person  who  buys  goods  from  an  agent  and  re- 
ceives possession  is  ordinarily  justified  in  paying  the 
agent  for  them,  but  such  agent  is  not  ordinarily  au- 
thorized to  accept  anything  but  money  in  payment. 
However,  usage  may  change  this;  and  whether  he 
may  sell  on  credit  depends  largely  on  circumstances. 
Generally,  an  agent  who  buys  cannot  pledge  his 
principal's  credit. 

The  powers  of  the  general  manager  of  a  business 


LAW  OF  AGENCY  AFFECTS  BUSINESS  11 

are  presumptively  commensurate  with  the  demands 
of  the  business,  and  will  include  whatever  is  ordi- 
narily incidental  thereto.  An  agent  having  possession 
of  securities  is  presumed  to  have  authority  to  make 
collection  thereof,  but  not  where  he  does  not  have 
possession,  even  though  he  negotiated  their  purchase. 
When  the  transaction  involves  the  agent's  making  or 
endorsing  commercial  paper,  the  third  person  should 
be  unusually  circumspect,  as  the  presumption  is  very 
strong  against  the  agent's  having  the  required  au- 
thority. 

Effect  Where  Agent  Exceeds  Authority.  Of  course 
if  the  agent  has  no  actual  authority,  or  having  such 
actual  authority,  acts  beyond  the  scope  of  his  author- 
ity (real  or  apparent  as  the  case  may  be)  contracts 
made  by  him  are  ineffectual  unless  the  principal  sees 
fit  to  ratify  them.  The  third  person  can  avail  him- 
self of  a  contract  only  when  the  agent  acts  within 
his  authority.  Hence  the  third  person  cannot  com- 
plain if  the  contract  in  question  is  ineffectual  because 
in  excess  of  the  agent's  power.  The  third  person  has 
no  right  or  power  to  increase  the  authority  of  the 
agent.  This  right  is  reserved  to  a  voluntary  prin- 
cipal, or  if  an  agency  by  necessity  to  the  law  itself. 
And  in  this  connection,  it  should  be  emphasized  that 
the  scope  of  authority  is  not  determined  by  what  the 
agent  declares  his  authority  to  be  but  what  the  prin- 
cipal or  the  law,  or  both,  determine  it  to  be. 

The  apparent  scope  of  authority,  for  example,  of 
commission  merchants  (technically  known  as  fac- 
tors) is  largely  a  matter  of  custom.  Buyers  of  goods 
are  also  generally  protected  by  statutes  when  dealing 


12  MODERN  AMERICAN  LAW  LECTURE 

with  such  agents  in  the  usual  course  of  business. 
The  factor  has  power  to  sell  the  goods  virtually  as  he 
pleases,  to  warrant  their  quality  or  his  principal's 
title,  or  even  to  pledge  the  goods  to  protect  a  draft. 
But  he  must  not  barter,  or  sell  except  for  cash  or  (by 
some  authorities)  for  good  bankable  paper.  While 
the  field  of  the  broker's  activity  is  more  extensive 
than  that  of  commission  men,  the  scope  of  his  author- 
ity is  more  limited.  Generally  he  has  no  power  to 
warrant  so  as  to  bind  his  principal.  He  may  sell  on 
credit  only  when  usage  permits.  Not  having  posses- 
sion of  the  goods,  etc.,  sold,  he  does  not  ordinarily 
have  authority  to  collect.  But  brokers  selling  stock 
may,  of  course,  collect  where  they  deliver  the  stock. 
Inherently  a  bank  cashier  has  authority  to  execute 
all  kinds  of  commercial  paper  incident  and  necessary 
to  the  bank's  business.  He  may  borrow  money  on 
the  bank's  credit  and  collect  its  debts,  and  he  may 
certify  its  customers'  checks. 

Undisclosed  Principal. 

It  often  happens  that  a  third  person  deals  with 
an  agent  not  knowing  or  suspecting  that  he  is  an 
agent  but  believing  him  to  be  a  principal.  When  the 
fact  of  the  agency  is  not  known  by  the  third  party, 
the  principal  is  an  undisclosed  one.  After  a  great 
deal  of  discussion  it  has  been  finally  settled  that  a 
third  person  acquires  practically  the  same  rights 
against  an  undisclosed  principal  as  against  any  other. 
But  as  the  fact  of  the  agency  is  undisclosed,  there 
can  be  no  apparent  authority  as  agent,  as  distin- 
guished from  actual  authority.     The  principal  is 


LAW  OF  AGENCY  AFFECTS  BUSINESS  13 

bound  only  to  the  extent  of  his  agent's  vested  power. 
The  undisclosed  principal  cannot  even  ratify  his 
agent's  unauthorized  act  so  as  to  avail  himself  of  it, 
or  bind  himself  by  it. 

While  the  relation  of  agency  exists,  the  agent  can 
bind  his  principal  by  any  act  done  within  the  scope 
of  his  authority,  and  by  any  admission  made  con- 
temporaneous with  and  explanatory  thereof.  But 
these  powers  terminate  when  the  relation  ceases.  For 
instance,  goods  were  sold  to  defendant  through  his 
agent.  The  correctness  of  the  accounts  could  not  be 
established  by  producing  statements  thereof  whereon 
was  written  by  the  agent  after  he  quit  his  job :  "This 
statement  is  correct.  J.  B.  M.  Clerk".  An  agent  is 
a  competent  witness  to  prove  the  agency,  but  state- 
ments by  him  out  of  court  to  this  effect  are  incom- 
petent. Thus  the  payee  of  a  note  or  draft,  is  not  al- 
lowed to  prove  that  the  defendant's  husband  told  the 
payee  that  he  was  his  wife's  agent.  In  other  words, 
parol  evidence  is  not  admissible  to  discharge  the 
agent. 

Ostensible  Authority.  The  third  person  may  hold 
the  principal  to  every  representation  made  by  his 
agent  within  the  scope  of  such  authority  as  the  prin- 
cipal leads  the  third  person  reasonably  to  believe  the 
agent  is  authorized  to  make.  If  an  agent  innocently 
misrepresents  a  material  fact,  the  third  person  may 
rescind  the  contract.  If  such  misrepresentation  is 
knowingly  or  recklessly  made  it  constitutes  fraud  and 
the  third  person  may  not  only  repudiate  the  contract, 
but  may  recover  damages  in  tort. 

Liability  is  not  confined  to  fraud.    Where  a  New 


14  MODERN  AMERICAN  LAW  LECTURE 

York  department  store  advertised  a  dental  depart- 
ment, it  was  held  answerable  to  a  patron  for  the  den- 
tist's malpractice  even  though  in  fact  the  dentist  was 
conducting  an  independent  business.  And  such  neg- 
ligence, though  done  in  performing  an  unauthorized 
act,  may  be  ratified.  A  coal  driver  without  authority 
filled  a  coal  order  and  in  so  doing  broke  a  plate  glass 
window.  When  the  dealer  tried  to  collect  for  the 
coal,  he  was  held  liable  for  the  window. 

A  Pennsylvania  court  has  recently  held  that  a  man 
cannot  reap  the  benefit  of  his  agent's  fraud  without 
at  the  same  time  subjecting  himself  to  the  burdens 
of  such  fraud.  This  applies  whenever  the  agent  acts 
within  the  scope  of  his  authority,  even  though  not  for 
the  principal's  benefit.  The  weight  of  authority  is 
to  the  effect  that  if  a  stock  transfer  agent  fraudu- 
lently issues  stock  certificates  in  excess  of  the  amount 
which  the  corporation  may  lawfully  issue  and  by 
collusion  with  the  transferee  of  such  excess  stock, 
sells  them  to  innocent  purchasers  for  value  for  his 
own  benefit,  the  company  is  liable  to  such  innocent 
purchaser.  So  also,  where  an  agent  who  is  author- 
ized to  issue  bills  of  lading  for  freight  received  by  a 
carrier  for  shipment,  issues  fictitious  bills  of  lading 
(that  is  for  freight  nominally  but  not  actually  re- 
ceived) and  issues  them  in  the  name  of  a  confederate 
by  and  through  whom  they  are  transferred  to  in- 
nocent purchasers,  the  carrier  (usually  a  railroad  or 
express  company)  is  liable  to  such  third  person  who 
thus  indirectly  deals  with  the  agent. 

An  interesting  case  arose  in  Minnesota.    D.  resid- 
ing at  a  distance  was  M.'s  purchasing  agent;    M. 


LAW  OF  AGENCY  AFFECTS  BUSINESS  15 

habitually  sent  D.  money  to  make  such  purchases,  on 
receipt  of  telegraphic  instructions  from  D.  The  tele- 
graph company's  operator  forged  a  message  from  D. 
which  was  delivered  to  M.  on  the  strength  of  which 
M.  forwarded  through  the  local  express  company 
(represented  by  the  same  operator)  the  sum  of  $1,500. 
The  operator  intercepted  the  package  on  its  arrival 
and  appropriated  the  money.  These  facts  were  held 
sufficient  to  establish  the  telegraph  company's  lia- 
bility. The  express  company  was  not  sued,  but  the 
court  intimated  it  too  would  have  been  liable. 

Where  Acts  of  Undisclosed  Principal  Have  Been 
Ratified.  Whenever  an  agent  for  a  disclosed  prin- 
cipal acts  within  the  scope  of  his  authority,  or  hav- 
ing acted  beyond  or  without  authority  has  his  act 
ratified  by  his  principal,  the  third  person  is  entitled 
to  look  to  the  principal  alone  on  the  contract.  Other- 
wise, as  we  have  already  seen,  the  third  person  may 
look  to  the  principal,  or  (as  we  shall  presently  see) 
he  may  elect  to  hold  the  agent.  But  in  certain  other 
cases  of  disclosed  principals,  the  third  person  may 
resort  to  either  the  principal  or  the  agent.  If  the 
agent  contracts  personally  in  a  simple  contract  (that 
is,  one  not  under  seal,  or  negotiable  under  the  law 
merchant)  he  is  personally  liable,  as  is  also  his  prin- 
cipal, at  the  option  of  the  third  person. 

In  a  leading  English  case,  an  agent  signed  a  con- 
tract for  the  sale  of  certain  iron,  though  known  to 
be  acting  for  an  iron  company,  and  he  was  held  liable 
as  well  as  his  employer  would  have  been  if  sued. 
In  a  New  York  case  an  agent  entered  into  a  contract 
under  seal  in  his  own  name,  though  really  on  behalf 


16  MODERN  AMERICAN  LAW  LECTURE 

of  his  principal.  When  his  principal  was  sued,  the 
latter  was  held  not  answerable.  The  contract  was 
under  seal  and  the  rule  of  the  common  law  is  that 
only  those  who  are  parties  to  a  sealed  instrument 
can  sue  or  be  sued  upon  it.  Had  the  contract  been 
a  " simple  contract"  (that  is,  unsealed)  the  principal 
might  have  been  held  liable. 

Ordinarily  the  death  of  the  principal  terminates 
the  agency.  The  fact  of  such  death  is  not  always 
immediately  known  to  the  agent  and  third  person. 
If  under  such  circumstances,  the  agent  assumes  to 
contract  on  behalf  of  his  principal,  no  contract  is 
really  made  and  the  principal's  estate  is  not  bound. 
This  principle  was  carried  to  an  extreme  length  in 
a  case  in  the  Federal  Supreme  Court  holding  that 
payments  made  to  an  agent  after  the  principal's 
death  did  not  release  the  debtor. 

Clearly  a  contract  entered  into  between  a  third 
person  and  an  agent  acting  as  such  within  his  actual 
or  apparent  authority  is,  if  binding  on  the  principal, 
likewise  binding  on  the  third  person.  The  same  is 
true  where  an  unauthorized  contract  is  duly  ratified. 
While  an  undisclosed  principal  cannot  ratify  an  un- 
authorized contract  so  as  to  hold  the  third  person, 
such  third  person  may  ordinarily  be  bound  by  any 
contract  on  behalf  of  an  undisclosed  principal  when 
the  agent  is  acting  within  his  actual  authority.  On 
principles  of  equity,  a  principal  may  recover  back 
money  which  an  agent  has  paid  to  a  third  person 
under  a  mistake  of  fact  or  similar  circumstances,  or 
which  the  third  person  has  obtained  from  the  agent 
by  duress  or  fraud  or  by  unjust  exactions. 


LAW  OF  AGENCY  AFFECTS  BUSINESS  17 

Extent  of  Agent's  Implied  Authority. 

As  previously  observed,  a  third  person  deals  with 
an  agent  at  his  peril.  When  an  agent  disposes  of  his 
principal's  property  or  funds  beyond  the  scope  of 
his  authority,  the  third  person  has  to  restore  the  same 
to  the  principal  or  account  therefor.  Where  a  sales 
agent  turns  over  goods  sent  him  to  sell,  in  payment 
of  a  debt  owing  by  him  to  the  transferee,  the  latter 
is  liable  to  the  principal  as  the  agent  has  no  author- 
ity to  dispose  of  the  goods  in  this  way 

An  agent  does  not  have  general  authority  to  endorse 
and  collect  negotiable  paper  payable  to  his  principal 
and  in  the  absence  of  such  authority  the  bank  on 
which  the  check  is  drawn  has  to  answer  a  second  time 
to  the  principal  named  as  payee.  Circumstances  and 
custom  may  of  course  modify  this  rule.  For  example, 
an  attorney  holds  a  claim  for  collection  on  a  commis- 
sion basis.  When  the  debtor  delivers  to  the  attorney 
a  check  payable  to  the  client's  order,  the  attorney, 
having  an  interest  in  the  proceeds,  is  authorized  to 
endorse  and  collect  the  check.  Of  course  if  the  com- 
mercial paper  is  payable  to  the  principal  or  bearer 
the  bank  is  justified  in  any  case  in  paying  on  presen- 
tation by  the  agent  just  as  it  would  when  presented 
by  any  bearer.  The  same  is  true  when  the  paper  is 
endorsed  in  blank,  and  delivered  to  the  agent,  though 
actually  the  property  of  the  principal. 

Moreover,  the  principal  may  by  his  own  conduct 
preclude  himself  from  asserting  rights  against  the 
third  person.  In  an  interesting  New  Hampshire 
case,  an  agent  employed  to  buy  a  horse,  took  a  bill  of 
sale  in  his  own  name,  which  he  exhibited  to  his  prin- 


18  MODERN  AMERICAN  LAW  LECTURE 

cipal  who  allowed  him  to  retain  both  the  horse  and 
the  bill  of  sale.  The  agent  showed  the  bill  of  sale  to 
a  third  person  who  did  not  know  of  the  agency  and 
sold  him  the  horse.  The  third  person  was  properly 
held  not  accountable  to  the  principal  even  though  the 
agent  embezzled  the  proceeds.  In  another  case,  an 
ordinance  provided  that  public  vehicle  licenses  should 
be  taken  out  in  the  owner's  name.  A  dray  owner  al- 
lowed his  brother  to  secure  such  license  in  his  own 
name.  An  innocent  purchaser  from  such  brother, 
having  investigated  the  records  was  protected  in  his 
purchase. 

Several  states  have  enacted  statutes  known  as 
"Factors  Acts."  These  protect  innocent  purchasers 
buying  from  commission  merchants  who  have  dealt 
with  the  principals'  goods  in  excess  of  their  authority. 
The  common  law,  however,  does  not  make  any  such 
distinction. 

Liability  in  Tort  of  Third  Person  to  Principal. 

Not  only  in  contract  but  in  tort  as  well,  may  a 
third  party  be  liable  to  the  principal.  This  is  espe- 
cially true  where  there  is  collusive  fraud  between 
the  third  person  and  the  agent.  Where  a  coal  mer- 
chant offered  to  sell  the  purchasing  agent  of  a 
municipal  corporation  coal  at  a  price  which  would 
net  the  agent  a  profit  to  himself,  the  commission  was 
declared  by  the  court  to  constitute  a  fraud.  It  was 
held  that  the  excess  price  was  a  damage  to  the  city 
and  that  the  amount  could  be  recovered  from  the 
merchant,  although  as  indicated  the  merchant  him- 
self did  not  get  the  excess. 


LAW  OF  AGENCY  AFFECTS  BUSINESS  19 

Where  a  third  person  knowing  that  an  agent  is 
about  to  commit  a  fraud  on  his  principal,  becomes  a 
party  to  the  fraud  by  contracting  with  such  knowl- 
edge, the  principal  may  avoid  the  contract.  A  lot 
owner,  in  ignorance  of  the  fact  that  another  had  im- 
proved his  lot  by  mistake  thereby  enhancing  its  value, 
authorized  the  agent  to  sell  it  for  about  one-third  its 
value.  The  agent  knowing  of  such  improvement  sold 
it  to  a  third  person  who  also  knew  of  it,  both  of  them 
knowing  the  owner  was  unaware  of  the  true  facts. 
The  sale  was  set  aside  even  though  a  price  somewhat 
in  advance  of  that  fixed  by  the  owner  was  paid. 

Moreover  the  third  person  is  liable  to  the  principal 
for  any  unlawful  interference  with  the  agency;  as, 
by  unlawfully  injuring  the  agent  or  interfering  with 
his  performance  of  his  duties,  or  for  unlawfully  in- 
ducing the  agent  to  breach  his  contract  of  employ- 
ment. A  leading  case  is  one  wherein  an  actor  or 
singer  was  engaged  by  the  plaintiff  to  perform  at  his 
theater.  When  the  defendant,  a  rival  theater  owner, 
prevailed  on  the  employe  to  breach  his  engagement 
(knowing  of  the  prior  contract)  the  defendant  was 
held  answerable  in  damages.  While  it  is  true  that 
the  actor  was  not  an  agent  in  any  sense,  still  the  un- 
derlying principle  is  the  same.  The  law  holds  one 
liable  for  any  illegal  interference  with  a  contract  of 
service. 

Third  Person's  Knowledge  of  Agent's  Fraud. 
Where  an  agent  wrongfully  appropriates  his  prin- 
cipal's money  or  property  and  the  same  comes  into 
the  hands  of  a  third  person  who  is  aware  of  the  wrong 
or  being  unaware  of  it  receives  the  property  without 


20  MODERN  AMERICAN  LAW  LECTURE 

proper  consideration,  the  recipient  must  respond  to 
the  principal.  In  an  Indiana  case,  a  trusted  employe 
embezzled  several  thousand  dollars  belonging  to  the 
corporation  employing  him.  This  he  invested  in  real 
estate  but  he  put  the  title  in  his  wife's  name.  The 
corporation  sued  the  wife  to  secure  the  property  and 
it  was  held  that  she  was  in  legal  effect  a  trustee  for 
the  company  whose  funds  her  husband  had  misappro- 
priated. 

III.      . 

RELATIONS  BETWEEN  THE  AGENT  AND 
THIRD  PERSONS. 

Next  in  importance  are  the  questions  as  to  the  re- 
ciprocal rights  of  the  agent  and  third  party  against 
each  other.  As  we  have  seen,  when  the  agent  carries 
out  the  evident  purpose  of  the  agency,  by  acting 
within  his  authority  and  entering  into  a  contract  in 
his  principal's  name,  he  is  not  involved  in  the  transac- 
tion as  a  party  to  the  contract  and  his  principal  alone 
is  liable.  But  if  the  agent  acts  beyond  his  authority 
or  not  in  the  principal's  name,  a  different  situation 
exists. 

Liability  of  Agent  for  Unauthorized  Acts. 

If  an  agent  assumes  to  act  without,  or  beyond  his 
apparent,  authority  (whether  he  does  so,  intention- 
ally, carelessly  or  erroneously)  he  alone  is  liable  to 
a  third  person  injuriously  affected  thereby.  Thus 
where  an  agent  for  a  fire  insurance  company,  repre- 
sented to  a  policy  holder  that  when  petroleum  was 
kept  by  the  single  barrel  at  a  time  it  was  unnecessary 
to  mention  such  fact  in  the  policy  or  to  get  the  com- 


LAW  OF  AGENCY  AFFECTS  BUSINESS  21 

pany's  consent,  and  it  appeared  that  lie  had  no  au- 
thority to  make  such  statement,  a  holder  who  in  re- 
liance on  the  agent's  statement,  forebore  to  secure 
an  exception,  was  barred  from  recovery  against  the 
company.  As  well  expressed  in  the  opinion:  "If 
the  agent  has  no  such  authority  and  acts  bona  fide, 
still  he  does  a  wrong  to  the  other  party,  and  if  that 
wrong  produces  injury  to  the  latter,  owing  to  his 
confidence  in  the  truth  of  an  express  or  implied  asser- 
tion of  authority  by  the  agent,  it  is  perfectly  just  that 
he  who  makes  such  assertions  should  be  personally 
responsible  for  the  consequences,  rather  than  that  the 
injury  should  be  borne  by  the  other  party  who  has 
been  misled  by  it." 

Necessity  of  Existence  of  Principal  Capable  of 
Acting.  In  order  to  make  the  agent  liable  in  such  a 
case,  however,  the  unauthorized  contract  must  be 
one  which  the  law  would  enforce  against  the  prin- 
cipal if  it  had  been  authorized  by  him.  An  auction- 
eer, without  disclosing  his  principal,  sold  corporate 
stock  to  the  plaintiffs  at  a  price  lower  than  he  was 
authorized  to  sell.  His  principal  refused  to  carry  out 
the  contract.  Thereupon  the  plaintiff  sued  the  auc- 
tioneer, who  set  up  that  the  contract  of  sale  not  being 
in  writing  was  unenforceable.  On  appeal,  four  judges 
of  the  New  York  Court  of  Appeals,  held  the  auction- 
eer not  liable,  and  three  held  to  the  contrary.  If 
the  agent  intentionally  misstates  his  authority,  he  is 
(if  liable  at  all)  answerable  in  tort  for  deceit. 

The  same  rules  apply  apparently,  where  there  is  a 
misstatement  actual  or  implied,  as  to  the  competency 
of  the  principal,  as  where  an  agent  acts  for  an  infant 


22  MODERN  AMERICAN  LAW  LECTURE 

who  (under  the  common  law  at  least)  could  not  have 
an  agent  and  certainly  not  one  by  appointment  under 
a  powrer  of  attorney. 

Where  promoters  of  a  proposed  corporation  enter 
into  contracts  on  its  behalf  before  it  is  incorporated, 
no  corporate  contract  is  formed  for  the  simple  reason 
that  there  is  no  principal  in  existence  legally  capable 
of  contracting.  Moreover,  such  corporation  when  it 
comes  into  existence  cannot  legally  ratify  such  con- 
tract, in  a  technical  sense.  The  only  effective  way  is 
for  the  corporation  when  it  is  finally  organized,  to 
make  a  contract  along  the  same  lines  with  the  per- 
sons who  had  the  so-called  contract  with  the  promo- 
ters. This  should  be  done  by  adopting  a  resolution 
authorizing  the  contract  at  a  meeting  of  the  stock- 
holders or  directors  (whichever  has  the  power  in  the 
given  case)  and  then  formally  entering  into  the  con- 
tract between  the  new  corporation  and  the  third  per- 
son. 

Special  Instances  of  Agent's  Liability.  Where  ex- 
clusive credit  is  given  to  one  known  to  be  acting  as 
an  agent,  and  it  is  intended  by  both  parties  to  a  given 
contract  that  no  resort  shall  be  had  by  or  against  the 
principal,  and  also  where  the  skill,  solvency  or  any 
personal  quality  of  the  agent  is  a  material  ingredient 
in  the  contract,  the  agent  is  accountable  to  the  third 
person  for  the  fulfilment  of  the  contract.  Where  a 
person  makes  a  contract  of  sale  of  real  estate  in  his 
own  name  as  owner,  he  cannot  discharge  his  contract 
by  tendering  a  deed  of  another  person,  even  though 
such  other  person  is  the  real  owner.  Where  an  agent 
is  given  cash  to  make  a  purchase,  but  instead  pays 


LAW  OF  AGENCY  AFFECTS  BUSINESS  23 

only  part  cash  and  gives  his  own  check  for  the  bal- 
ance, the  seller  must  look  to  the  agent  alone  for  such 
balance  and  not  to  the  principal,  if  the  check  is  dis- 
honored. 

By  a  technical  rule  of  the  common  law,  the  ven- 
dor in  a  sealed  instrument,  executory  as  between  the 
parties,  for  the  sale  of  land,  cannot  enforce  it  as  the 
shnple  contract  of  another  not  mentioned  in  or  a 
party  to  it.  This  is  true  even  though  the  vendor 
prove  that  the  vendee  named  in  and  signing  and  seal- 
ing the  contract,  had  oral  authority  from  such  other 
to  make  the  contract  and  to  act  as  the  other's  agent 
in  the  transaction.  Nor  can  the  vendor,  under  such 
circumstances,  recover  the  balance  of  the  purchase 
price  from  such  alleged  principal.  There  have  been 
a  great  many  refinements  in  construing  such  con- 
tracts. To  a  great  extent  the  difficulties  have  been 
obviated  by  statutes  enacting  that  contracts  merely 
to  sell  as  distinct  from  deeds  and  mortgages  need  not 
be  under  seal,  but  simply  in  writing.  The  same 
result  is  reached  in  some  states,  where  statutes  do 
not  specifically  require  the  contract  to  be  under  seal. 

Liability  of  Agents  as  to  Negotiable  Instruments. 

By  a  general  rule  of  th&  law  merchant,  persons 
dealing  with  negotiable  instruments  are  presumed  to 
take  them  on  the  credit  of  the  parties  whose  names 
appear  upon  them,  and  a  person  not  a  party  cannot 
be  charged  upon  proof  that  the  ostensible  party 
signed  or  endorsed  as  his  agent.  Negotiable  instru- 
ments bind  only  the  ostensible  maker,  though  the 
word  "agent"  follows  his  signature,  where  no  prin- 


24  MODERN  AMERICAN  LAW  LECTURE 

cipal  is  named  in  the  body  of  the  instrument,  or  in- 
dicated by  the  signature. 

The  holder  is  not  bound  to  search  for  a  principal 
unknown  to  the  instrument  itself.  Conversely,  the 
holder's  rights  are  confined  to  the  parties  to  the  in- 
strument and  he  must  rely  upon  them  alone.  But  he 
may  establish  that  the  name  used  as  the  signature  to 
the  instrument  has  been  adopted  by  the  assumed 
principal  or  by  the  person  not  named  in  the  instru- 
ment as  his  own  in  transacting  the  business.  These 
doctrines  were  laid  down  in  a  New  York  case  in  which 
one  Love  was  sued  on  a  note  signed  "  J.  W.  Johnson, 
Agent."     A  judgment  for  Love  was  affirmed. 

Ambiguities  on  Face  of  Instrument.  As  just  in- 
dicated, the  face  of  the  negotiable  instrument  may 
disclose  an  ambiguity  or  doubt  as  to  who  is  the  real 
maker  and  in  such  cases  parol  evidence  is  sometimes 
admitted  to  remove  or  explain  the  ambiguity.  The 
instrument  may  clearly  show  on  its  face  that  it  is 
the  obligation  of  the  principal  alone  or  of  the  agent 
alone,  but  in  between  there  are  numerous  cases  of 
doubt  and  ambiguity.  In  solving  these,  various 
courts  have  reached  different  results  and  the  whole 
subject  is  hence  one  of  confusion. 

Assuming  that  Porter  is  really  the  principal  and 
Adams  is  his  agent,  the  following  signatures  to  nego- 
tiable paper  have  been  held  to  be  that  of  the  prin- 
cipal only :  John  Porter ;  Porter  by  agent  Adams,  or 
by  Adams,  agent,  or  by  Adams;  Adams,  agent  for 
Porter ;  Adams  for  Porter ;  for  Porter,  Adams.  Like- 
wise the  following  have  been  construed  to  be  the  sig- 
nature of  the  agent  only :  Adams ;  Adams,  agent,  as 


LAW  OF  AGENCY  AFFECTS  BUSINESS  25 

in  the  Love  case  cited;  Adams,  agent  of  Porter; 
Adams,  President  or  Treasurer  of  Porter  Company ; 
Adams  trustee.  A  note  reading:  "For  value  re- 
ceived, we  promise  to  pay,  etc.  Signed,  Harriman, 
Trevett,  (and  others)  President,  Directors  of  P.  & 
S.  Co."  was  held  to  present  no  ambiguity  and  to  be 
the  promise  of  the  persons  named  alone  without  any- 
thing to  indicate  that  it  was  for  or  on  behalf  of 
another. 

But  suppose  the  note  had  been  signed  "P.  &  S.  Co., 
Harriman,  President."  The  courts  hold  three  differ- 
ent ways  on  this :  some  that  it  is  the  company's  signa- 
ture alone ;  others  that  it  is  the  signature  of  both  the 
company  and  the  president  personally;  and  still 
others  that  its  ambiguity  is  such  as  to  permit  a  parol 
explanation.  In  Indiana,  affixing  the  corporate  seal 
has  been  declared  to  be  equivalent  to  the  corpora- 
tion's written  signature. 

Ambiguities  in  the  Body  of  the  Instrument.  Re- 
citals in  the  body  of  the  instrument  sometimes  create 
ambiguities  and  at  other  times  serve  to  remove  am- 
biguities. Thus,  a  note  reciting  "We,  the  subscri- 
bers, jointly  and  severally  promise  to  pay  X,  or  order, 
for  the  B.  Co.,  $3,500,  etc.  (signed)  Hunnewell,  Gore, 
Kupper,"  was  considered  the  personal  obligation  of 
the  signers  and  not  of  the  B.  Co.  which  was  sued. 
On  the  other  hand,  a  note  reciting  "On  June  1,  1898, 
the  Western,  etc.,  Society  agrees  to  pay  to  the  order 
of  J.,  $5,592,  etc.,  (signed)  B.  F.,  Gen'l  Supt."  was 
held  to  be  so  ambiguous  as  to  admit  oral  proof  of 
whose  obligation  it  really  was. 

The  recitals  may  not  be  in  the  body  of  the  instru- 


26  MODERN  AMERICAN  LAW  LECTURE 

ment,  but  elsewhere.  In  a  leading  case  in  the  United 
State  Supreme  Court,  a  check  drawn  on  the  C. 
Bank,  signed  "Wm.  Paton,  Jr.,"  had  printed  on  its 
margin  "Mechanics  Bank,"  of  which  Paton  was 
cashier,  and  it  was  held  to  be  the  latter  bank's  check. 
A  draft  headed  " Office  of  B.  Co.,"  signed  B.,  Presi- 
dent, W.,  Secy.,  and  addressed  to  P.,  Treasurer,  was 
held  by  that  court  to  be  the  company's  draft.  But 
in  New  York  where  a  note  was  signed  "Clark,  Pres., 
Close,  Treas.,"  and  had  a  marginal  notation,  "R.  Ice 
Co.,"  the  court  held  that  the  appearance  on  the  mar- 
gin of  the  printed  name  was  not  a  fact  carrying  any 
presumption  that  the  note  was  or  was  not  intended 
to  be  one  by  that  company. 

If  one  accepts  a  draft,  he  is  bound  as  acceptor  even 
though  he  adds  the  word  "agent,"  "president," 
"treasurer,"  or  the  like  to  his  signature.  This  ap- 
plies where  the  draft  is  drawn  on  him.  If  drawn  on 
the  principal  and  accepted  by  the  agent  as  such,  the 
liability  is  obviously  doubtful.  In  fact,  such  proced- 
ure is  so  irregular  as  to  make  the  whole  acceptance 
questionable. 

Where  both  the  names  of  a  corporation  and  of  an 
officer  or  agent  of  it  appear  upon  a  bill  or  note  it  is 
often  perplexing  to  determine  whether  it  is  in  legal 
effect  the  contract  of  the  corporation  or  of  the  indi- 
vidual officer  or  agent.  Where  a  note  is  made  pay- 
able to  a  corporation  in  its  corporate  name  and  is 
endorsed  by  the  authorized  officials  of  the  corpora- 
tion, the  tendency  is  to  hold  the  indorsement  as  that 
of  the  corporation.  This  holding  is  due  to  the  well 
established  rule  of  the  Law  of  Negotiable  lnstru- 


LAW  OF  AGENCY  AFFECTS  BUSINESS  27 

ments  that  no  one  but  the  payee  can  be  the  first  in- 
dorser  of  commercial  paper  and  thus  make  transfer 
of  title  thereto.  In  addition,  extrinsic  evidence  is 
admissible  to  show  that  only  in  the  indorser's  official 
capacity  was  the  indorsement  made  as  that  of  the  cor- 
poration. 

Liability  of  Agent  Where  Principal  Is  Undisclosed. 

Referring  back  to  the  allusions  to  undisclosed  prin- 
cipals (as  distinct  from  merely  unnamed  ones)  it 
was  noted  that  though  not  nominally  a  party  thereto, 
such  principals  are  liable  on  equitable  grounds.  But 
this  does  not  excuse  the  agent  from  his  legal  liability. 
Being  a  party  to  the  contract  in  terms,  the  agent  is 
liable  unless  (with  full  knowledge  of  the  fact)  the 
third  person  elects  to  look  to  the  principal  after  dis- 
covering his  existence  and  identity.  This  right  of 
choosing  whom  he  will  sue  rests  with  the  third  person 
and  he  cannot  be  controlled  in  it  by  the  agent.  More- 
over, it  is  a  rule  of  evidence  that  parol  proof  is  inad- 
missible to  alter,  vary  or  enlarge  the  terms  of  a  writ- 
ten contract.  Consequently,  if  one  in  terms  enter  into 
a  written  agreement  naming  himself  as  principal,  he 
cannot,  when  sued,  repudiate  such  character  and  suc- 
cessfully assert  that  he  was  merely  an  agent. 

An  agent  is  also  liable  to  the  third  person  where  he 
has  an  interest  in  the  subject  matter  of  the  transac- 
tion, as  is  the  case  with  an  auctioneer.  He  may  be 
personally  liable  for  refusing  to  accept  a  highest  bid 
or  for  refusing  to  deliver  goods  in  his  possession  sold 
by  him  for  his  disclosed  principal,  etc.  He  is  not, 
however,  liable  upon  an  implied  warranty  of  title. 


28  MODERN  AMERICAN  LAW  LECTURE 

As  previously  shown,  the  principal's  death  termi- 
nates the  agency;  so  that  if  the  agent  contracts  on 
behalf  of  the  principal  subsequent  to  the  latter 's 
death  and  in  ignorance  thereof,  the  agent  is  not  liable 
as  he  would  be  for  an  incompetent  or  fictitious  prin- 
cipal. Nor  is  he  liable  where  he  discloses  fully  the 
extent  of  his  authority  and  then  assumes  to  act  in 
excess  of  it ;  nor  where,  by  reason  of  insufficiency  of 
the  form  in  which  the  contract  is  entered  into,  the 
principal  himself  is  not  bound.  Ordinarily,  a  pub- 
lic agent  acting  officially  is  not  bound  personally  by 
contracts  entered  into  with  third  persons,  irrespect- 
ive of  the  form  or  nature  of  such  contracts. 

Other  Instances  of  Agent's  Liability. 

Where  money  has  been  paid  to  an  agent  for  his 
principal,  under  such  circumstances  that  it  may  be 
recovered  back  from  the  latter,  then  it  may  be  recov- 
ered from  the  agent  provided  he  has  not  paid  it  to  his 
principal,  nor  altered  the  situation  in  relation  to  his 
principal,  as  for  instance,  by  giving  fresh  credit. 
The  rule  does  not  apply  where  there  is  a  mere  passing 
of  credit  on  the  agent's  books,  for  in  that  case  the 
agent  still  has  it  in  his  power  to  redress  himself.  But 
if  by  mistake  the  third  person  pays  the  agent  money 
for  the  principal,  or  upon  a  consideration  which  fails, 
the  agent  is  liable  to  the  third  person  if  such  third 
person  duly  notifies  the  agent  before  he  has  paid  it 
over  to  his  principal  or  otherwise  effectually  changed 
his  position  as  to  it  with  his  principal. 

Malfeasance  of  Agent.  If,  however,  the  money  has 
been  obtained  by  any  fraud  perpetrated  by  the  agent 


LAW  OF  AGENCY  AFFECTS  BUSINESS  29 

he  is  liable  even  though  he  may  have  paid  it  over  to 
his  principal.  If  the  agent  is  innocent  and  the  prin- 
cipal alone  is  guilty  of  the  fraud,  the  agent  is  not  ac- 
countable except  under  the  circumstances  as  just 
given  in  cases  of  mistake.  Money  paid  by  compulsion 
or  extortion  is  affected  the  same  as  in  fraud  cases. 
Where  an  agent  rightfully  receives  money  on  behalf 
of  his  principal,  but  wrongfully  appropriates  it,  the 
third  person  has  a  right  to  proceed  against  either  the 
principal  or  the  agent. 

Misfeasance  of  Agent.  Not  only  in  cases  of  mal- 
feasance as  just  enumerated,  but  often  in  cases  of 
misfeasance,  an  agent  is  liable  in  damages  to  the  third 
person,  as  where  an  agent  misrepresented  that  land 
which  he  was  selling  for  his  principal  was  clear  of 
incumbrances,  when  it  had  a  mortgage  against  it.  In 
a  California  case,  defendant  was  engaged  in  the  busi- 
ness of  buying  and  selling  corporate  stock  on  com- 
mission. Plaintiff's  employe  stole  certain  stock  from 
plaintiff,  represented  to  defendant  he  owned  it  and 
defendant  in  good  faith  and  in  ignorance  that  it  was 
stolen,  sold  it  in  the  regular  course  of  business  and 
paid  the  proceeds  to  the  thief.  Four  judges  held  the 
commission  man  liable  for  conversion  and  two  judges 
dissented.  An  old  English  case  declares  that  "the 
warrant  of  no  man,  not  even  the  king  himself,  can 
excuse  the  doing  of  an  illegal  act,  for  though  the  com- 
manders are  trespassers,  so  also  are  the  persons  who 
do  the  act." 

Non-feasance  of  Agent.  As  to  mere  non-feasance, 
Chief  Justice  Gray  says:  "It  is  doubtless  true  that 
if  an  agent  never  does  anything  towards  carrying  out 


30  MODERN  AMERICAN  LAW  LECTURE 

his  contract  with  his  principal,  but  wholly  omits  and 
neglects  to  do  so  the  principal  is  the  only  person  who 
can  maintain  an  action  against  him  for  the  non-fea- 
sance ;  but  if  the  agent  once  actually  undertakes  and 
enters  upon  the  execution  of  a  particular  work,  it  is 
his  duty  to  use  reasonable  care  in  the  manner  of  exe- 
cuting it,  so  as  not  to  cause  any  injury  to  third  per- 
sons which  may  be  the  natural  consequence  of  his 
acts ;  and  he  cannot,  by  abandoning  its  execution  mid- 
way and  leaving  things  in  a  dangerous  condition, 
exempt  himself  from  liability  to  any  person  who  suf- 
fers injury  by  reason  of  his  having  so  left  them  with- 
out proper  safeguards.  This  is  not  non-feasance,  or 
doing  nothing ;  but  it  is  misfeasance,  doing  improp- 
erly." If  the  agency  was  a  gratuitous  one,  not  even 
the  principal  can  recover  for  mere  non-feasance. 

An  agent,  as  we  have  already  seen,  is  personally 
liable  for  his  own  fraud  and  conversion  and  his  mere 
agency  is  no  protection.  He  may  be  personally  inno- 
cent, though  his  principal  is  not ;  in  which  case  ordi- 
narily the  principal  alone  is  answerable.  Where  they 
are  both  wrongdoers  to  the  injury  of  the  third  person 
the  latter  may  commonly  recover  jointly  against  both 
the  principal  and  the  agent. 

Liability  of  Agent  Where  Acting  Independently. 
Where  an  agent  contracts  in  his  own  name  in  a 
sealed  or  negotiable  instrument  he  alone  is  compe- 
tent to  maintain  suit  on  such  instrument.  Where  the 
instrument  is  sealed  the  agent's  recovery  is  subject 
to  any  set  off  against  the  principal  in  favor  of  the 
third  person,  who  is  after  all  the  real  party  in  inter- 
est. In  the  case  of  a  negotiable  instrument,  the  agent 


LAW  OF  AGENCY  AFFECTS  BUSINESS     31 

may,  of  course,  easily  endorse  the  paper  to  his  prin- 
cipal, thereby  making  the  principal  a  competent 
plaintiff. 

One  may  contract  as  agent  when  he  is  in  reality  a 
principal.  Circumstances  control  as  to  whether  the 
promisee  may  throw  off  the  character  of  agent  and 
sue  as  principal.  Again,  it  may  sometimes  happen 
that  both  the  principal  and  agent  are  bound  to  the 
third  person  by  the  same  contract.  In  such  cases,  by 
the  doctrine  of  mutuality,  either  may  sue  the  third 
person,  though  the  primary  right  seems  to  be  in  the 
principal.  In  either  event  the  defendant  may  set  up 
any  defense  good  against  either,  irrespective  of  who 
sues.  In  an  Indiana  case,  where  a  joint  agent  sued  as 
trustee  for  his  joint  principal,  the  defendant  set  up  a 
release  executed  by  such  principals  and  this  was  held 
good. 

Where  the  third  person  has  been  paid  money  by 
the  mistake  of  the  agent,  he  is  liable  in  quasi-contract 
therefor;  and  to  recover  it,  either  the  principal  or 
agent  may  sue.  So,  also,  the  third  person  is  liable  to 
the  agent  as  such  for  a  few  torts  which  he  may  com- 
mit against  such  agent ;  thus,  where  the  third  person 
injures  or  converts  property  in  which  the  agent  (such 
as  an  auctioneer  or  factor)  has  a  special  interest ;  or 
where  his  compensation  depends  on  commissions  and 
the  third  person  falsely  and  maliciously  libels  such 
articles,  thereby  diminishing  his  sales ;  or  where  the 
third  person  unjustifiably  induces  a  principal  to  dis- 
charge an  agent. 


32  MODERN  AMERICAN  LAW  LECTURE 

IV. 

RELATIONS  BETWEEN  PRINCIPAL  AND  AGENT. 

Moving  now  to  the  relations  of  the  principal  and 
agent  as  between  themselves,  we  find  that,  strictly 
speaking,  this  is  not  within  the  purview  of  our  sub- 
ject, for  in  the  main  the  third  person  is  not  concerned 
with  the  relations  as  between  the  principal  and  agent. 
Still  there  are  many  instances  in  which  the  third  per- 
son is  indirectly  concerned  and  to  a  few  of  these  let 
us  now  direct  our  attention. 

We  have  already  observed  that  a  principal  and 
third  person  are  mutually  bound,  both  in  contract  and 
by  common  law,  only  when  the  agent  is  acting  within 
his  real  or  apparent  authority,  as  the  case  may  be. 
But  suppose  he  is  not  acting  within  his  authority 
and  that  the  transaction  is  ineffectual.  We  have  seen 
that  the  principal  may  ratify  and  this  will  have  a 
retroactive  effect.  What  are  the  results  as  to  the 
agent's  rights  and  liability  in  these  and  other  unex- 
pected situations  ? 

Duties  of  the  Agent. 

If  the  agent  acts  beyond  his  actual  authority  but 
within  his  apparent  authority  and  the  principal  is 
thereby  bound  to  the  third  person,  the  principal  may 
recover  from  the  agent  for  the  damage  done.  If  the 
agent  is  given  express  directions  and  departs  from 
them  he  is  liable,  for  one  of  the  duties  he  owes  is 
obedience.  If  he  is  vested  with  discretion  or  dele- 
gated any  management  he  must  act  with  due  care,  for 
another  essential  duty  is  to  exercise  prudence.  Doubt- 


LAW  OF  AGENCY  AFFECTS  BUSINESS  33 

less  the  paramount  duty  of  every  agent  is  to  exercise 
good  faith.  Agency  is  properly  said  to  be  a  relation 
uberrimae  fidei — of  the  utmost  confidence.  It  fol- 
lows somewhat  the  Biblical  principle  that  a  man  can- 
not serve  two  masters.  Applied  to  agency  this  means 
that  a  person  cannot  serve  two  principals  at  once 
when  they  have  adverse  interests. 

Especially  true  is  it  that  an  agent  cannot  lawfully 
represent  another  in  any  transaction  in  which  his 
employer  has  an  interest,  and  such  other  includes 
himself  as  well  as  any  third  person.  Instances 
along  this  line  are  numerous.  Thus,  where  an 
agent  was  not  only  to  look  after  and  care  for  his 
principal's  land,  but  to  sell  it,  it  was  a  violation  of  his 
duty  to  take  a  tax  deed  to  himself  or  another. 

So  also  where  an  agent  undertook  to  purchase  cor- 
porate stock  for  his  principal  and  without  the  lat- 
ter's  knowledge  transferred  ten  shares  of  his  own 
stock  to  the  principal,  the  latter  was  entitled  to 
rescind  the  sale  irrespective  of  values,  as  the  law  looks 
only  to  the  constructive  fraud.  An  agent  bought  a 
horse  of  a  third  person  for  $65,  agreeing  to  divide 
the  profits  with  him.  At  the  same  time  he  had  $80  of 
his  principal's  money  with  which  he  was  to  buy  a 
horse  as  cheaply  as  possible  and  to  receive  $1  for  his 
services.  The  principal  was  held  entitled  to  a  judg- 
ment for  the  excess  over  the  actual  cost  price  ($72.50) 
and  the  fee.  Where  the  manager  of  a  Chicago  theater 
took  a  renewed  lease  in  his  own  name,  he  was  held 
to  be  a  trustee  thereof  for  the  benefit  of  his  principal. 
As  we  have  already  seen,  if  there  is  any  collusion 
between  the  agent  and  third  party,  both  are  liable. 


34  MODERN  AMERICAN  LAW  LECTURE 

Other  duties  an  agent  owes  his  principal  are  to 
keep  his  principal's  property  and  money  separate 
from  his  own,  to  keep  and  render  proper  accounts 
of  his  transactions  and,  as  already  stated,  to  turn 
over  to  his  principal  the  profits  derived  from  the 
business.  If  an  agent  deposits  money  in  his  own 
name  in  his  own  account,  he  is  personally  liable  if  the 
bank  fails  or  the  money  is  negligently  paid  out.  In 
an  interesting  Vermont  case,  an  agent  sold  prize 
packages  of  candies  (contrary  to  a  penal  statute)  and 
collected  the  price  which  he  refused  to  account  for 
on  the  ground  of  the  illegality  in  the  transaction. 
The  Court  said:  "When  the  money  was  so  paid  by 
the  purchasers,  it  became  the  principal's  money  and 
when  it  was  received  by  the  agent  as  such,  the  law, 
in  consideration  thereof,  implies  a  promise  on  the 
agent's  part  to  pay  it  over  to  his  principal;  it  is  this 
obligation  that  the  present  action  is  brought  to  en- 
force; no  illegality  attaches  to  this  contract."  The 
same  rule  was  applied  in  compelling  a  bucket-shop 
broker  to  account  for  profits  made  in  dealing  in  "fu- 
tures"; though  there  is  some  dissent  as  to  this. 

Duty  of  Agent  Not  Dependent  Upon  Compensa- 
tion. So  far  as  the  third  person  is  concerned,  it  makes 
but  very  little  difference  whether  the  agency  relation 
is  gratuitous,  or  founded  on  contract,  for,  as  already 
indicated,  the  right  of  recovery  for  mere  non-fea- 
sance on  the  agent's  part  is  limited  to  the  principal. 
He  in  turn  may  recover  only  when  the  agency  is 
founded  on  contract  for  there  is  ordinarily  no  lia- 
bility connected  with  the  non-feasance  of  a  gratuitous 
promise.    But  whether  gratuitous  or  otherwise,  if  the 


LAW  OF  AGENCY  AFFECTS  BUSINESS  35 

agent  undertakes  the  performance  of  his  promise  and 
in  so  doing  commits  a  wrong  to  his  principal's  dam- 
age he  is  liable  to  the  principal. 

Duties  of  the  Principal. 

The  principal  owes  corresponding  duties  to  his 
agent,  the  chief  one  of  which  is  probably  that  of  com- 
pensating the  agent.  Ordinarily  this  is  a  matter  of 
contract,  express  or  implied.  To  secure  his  compen- 
sation, an  agent  may  assert  a  lien  on  his  principal's 
property  in  his  possession.  The  liens  of  factors, 
bankers  and  attorneys  are  general;  those  of  other 
agents  are  special.  Where  an  agent  represents  both 
contracting  parties,  his  right  to  be  compensated  by 
either  of  them  depends  on  whether  the  principal  knew 
that  his  agent  was  also  acting  for  the  other  person. 
If  both  knew  he  was  acting  for  the  other  he  may 
recover  from  both. 

In  a  very  recent  Indiana  case  a  real  estate  broker 
whose  sole  function  was  admittedly  to  bring  the  pur- 
chaser and  seller  together  was  held  entitled  to  recover 
a  commission  from  both.  But  if  neither  knew  (act- 
ually or  impliedly)  that  he  was  acting  for  the  other, 
he  is  entitled  to  compensation  from  neither. 

A  leading  Pennsylvania  case  compelled  an  agent 
to  restore  a  $5,000  commission  which  he  had  already 
been  paid  under  these  circumstances.  If  one  of  them 
knew  and  the  other  did  not,  he  is  not  entitled  to  any 
pay  from  the  one  not  aware  of  the  duplicity,  and 
there  is  some  authority  to  the  effect  that  neither  is 
liable. 

If  an  agent  pays  out  or  becomes  individually  and 


36  MODERN  AMERICAN  LAW  LECTURE 

solely  liable  for  any  sums  to  a  third  person  in  the  due 
course  of  the  agency  and  for  the  principal's  benefit, 
he  is  entitled  to  reimbursement  provided  they  were 
reasonable  in  amount  and  necessary.  He  may  also 
receive  indemnity  against  the  consequences  of  all  acts 
duly  performed  without  neglect  or  illegality.  When, 
as  previously  stated,  a  third  person  recovers  against 
an  auctioneer  for  selling  as  his  principal's  property 
goods  belonging  to  such  third  person,  the  auctioneer 
may  hold  the  principal  to  indemnify  him  provided 
the  sale  was  innocently  made  and  not  carelessly. 

This  Lecture  has  not  attempted  to  be  an  exhaustive 
treatment  of  the  subject  of  Agency.  A  number  of 
situations  of  every-day  occurrence  have  been  dis- 
cussed with  the  belief  that  the  principles  of  this 
branch  of  the  law  will  thereby  be  better  fixed  in  mind. 

Since  one  may  do  by  an  agent  practically  anything 
which  he  might  do  by  himself,  it  follows  that  this 
branch  of  the  law  is  intimately  connected  with  prac- 
tically every  other  field  of  the  law.  The  cases  dis- 
cussed probably  have  helped  to  emphasize  this  fact. 
And  no  doubt  you  now  have  a  better  realization  of 
how  vitally  the  law  of  agency  affects  business. 


Jtxulord  —[ 


Cfauiorct  : 

GAYIAMOUNTIJ) 
PAMPHLET  BINDER 

^^_       Syracuse,  N.Y. 
^^^        Stockton,  Calif,  i 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


AA    000  684  068    o 


j: 


